The Politician in Chief Works for a Stimulus

Posted on Jan 8, 2009

By E.J. Dionne Jr.

It has been so long since Congress needed to pass a huge and urgent package of spending increases and tax cuts that few people understand how the politics of such a thing might work.

For at least two decades, Washington has focused (if sometimes only rhetorically) on the politics of deficit reduction. Nobody has a playbook for consciously and intentionally embarking on large-scale deficit spending. President-elect Barack Obama’s economic speech on Thursday was an attempt to write a first draft.

The substantive issues surrounding an economic stimulus—will the package be big enough and what mix of spending and tax cuts will do that job best?—are clearer than the politics of getting it passed fast. Here’s how Obama is trying to weave the politics and the substance together.

To begin with, there is deep resistance to deficits from the fiscally conservative Blue Dog Democrats for whom deficit reduction has been akin to a religious commitment. That’s one reason why Obama has been talking about controlling future entitlement spending and why he is touting plans to root out inefficiencies in government—witness the attention he gave to naming Nancy Killefer, a management consultant, as his “chief performance officer.”

For Obama, a highly public war against waste and fraud will ease passage of the stimulus while also showing that Democrats, who propose using government as the instrument for solving a lot of problems, intend to make reform a high priority.

House Speaker Nancy Pelosi plans to do her part as early as next week by bringing up a bill sponsored by Rep. John Tanner, D-Tenn., that would require agency-by-agency audits to eliminate waste.

The effort to win over the more conservative Democrats is working. On Wednesday, for example, Rep. Jim Cooper, also of Tennessee and a leading advocate of entitlement reform, praised Obama for insisting that “we can stimulate the economy and address our long-term problems at the same time.”

Obama may also face a conflict between getting his package passed fast and having it contain the most effective proposals. Many economists, particularly but not exclusively liberals, argue that government spending programs stimulate the economy more quickly than tax cuts. Recipients of tax cuts might choose to save rather than spend the money they get back, or else use it to pay down debt.

Obama solves this problem in part by focusing so much of his tax relief on middle- to low-income Americans, who are more likely to use the money for consumption. And the bulk of the package involves new spending, particularly on infrastructure and new environmental and technological investments. He is also pushing programs especially important to liberals: increases in unemployment benefits and food stamps; and fiscal relief to states for Medicaid and education expenditures.

Help to the state governments is crucial since they face a shortfall of more than $350 billion between now and 2011, according to the Center on Budget and Policy Priorities. In squeezing their own budgets, states could counteract the impact of a federal stimulus. That’s why Obama went out of his way to pledge to “help struggling states avoid harmful budget cuts.”

But about $100 billion of the package is expected to go to a variety of business tax cuts, some likely to be at best marginally stimulative. Why is Obama doing this? One Capitol Hill Democrat familiar with the president-elect’s recent meeting with congressional leaders said that Obama told Republicans that while he could probably get his program through with mostly Democratic votes, he preferred to win GOP support so his program could pass quickly and be sustainable over time.

The price may be worth paying, but only if the business tax cuts would actually promote a quick recovery. Wasting part of the economic package on ancient business wish lists would violate Obama’s own call for political leaders to “put the urgent needs of our nation above our own narrow interests.”

Nonetheless, the most striking aspect of Obama’s approach is how attuned he has been to his task as politician in chief. He has, so far, managed to maneuver around potential roadblocks rather than blast through them, even as he proposes a reorientation of our politics.

“Only government can break the vicious cycles that are crippling our economy,” Obama declared on Thursday. Considering how profoundly this view contrasts with the old conventional wisdom—“the era of big government is over,” “government is the problem”—it may be worth making a few concessions to put the country on a very different path.